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Vancouver, Toronto Real Estate Markets in a Bubble Due to Chinese Buyers – Wall Street Journal
Wall Street Journal Comments on Over Inflated Vancouver and Toronto Real Estate Markets – Points to Demand From Mainland China.
An article this morning in the Wall Street Journal highlights the dichotomy between the languishing US housing market and the firing hot markets of large metropolitan areas in Canada. The extended housing boom in this country has driven consumer debt levels to record highs spurred on by continuing low interest rates and strong demand both locally but most notably from mainland China.
Canada’s central bank has issued a string of warnings regarding high debt levels in Canada and has tightened up mortgage lending rules a second time in as many years. Although the second round of mortgage rule tightening may be more token than fiscally prudent, the rate of debt level growth is of real concern when compared to the same growth line of real incomes. A good friend of mine makes his living in the stock market and uses ‘technical analysis’ (charting) to predict future stock movement based on previous trading behaviour. He believes that Vancouver is overdue for a correction and it’s hard to argue otherwise when looking at his prediction tool of choice.
Whether you use charts, tea leaves or a crystal ball it’s plain to see that many housing market across Canada are at all time highs. David Madani, economist at Capital Economics Research Group in London predicts Canadian house prices could be in for a correction to the tune of 25% over the next three years. He points to the over-inflated ratio of house prices to income. According to Madani “house prices have risen to almost 5.5 times disposable income per worker, well above the historical average of 3.5%”. I always find it refreshing to get an international perspective on Canada’ s housing market as most Canadian economist remain bullish.
There is no doubt that Canada has weathered the recession well. While it may be easy to argue against a US style meltdown happening here, the real test will be how well Canadian households service their debt loads when interest rates increase and housing prices level off or drop. It’s not if, it’s when.
I am always concerned when I hear people say things like “We just wanted to do whatever we had to to get into the market” and, living in Vancouver I hear it a lot. Maybe they’re right – they certainly have been for the last 10 years in this city barring the brief blip on the radar screen in 2008 that represented the ‘great recession”, only the second most severe economic crisis in human history.
About the Author
I am a Vancouver realtor and mortgage broker who has been in the real estate industry for 12 years. My formal education includes a Bachelor’s of Commerce from the University of Natal and a diploma in Urban Land Economics from UBC
I enjoy many outdoor pursuits such as fishing, surfing, kayaking, windsurfing and camping.
Vancouver is a great place to live!
Live Stock Analysis of the Asian Stock Markets – June 1, 2011
